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Why Chinese Workers Sometimes Hold Foreign Execs Hostage

A worker looks out from a door with others at the Specialty Medical Supplies plant, where American Chip Starnes, a co-owner of Florida-based plant, is being held hostage at the Jinyurui Science and Technology Park in Qiao Zi township of Huairou District, on the outskirts of Beijing on Tuesday.

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U.S. businessman Chip Starnes stands behind the bars of his office window on Tuesday.

Beset by stories of runaway bosses, Chinese workers are adopting increasingly drastic methods in negotiating with their employers – including caging them in their own offices.

As The Wall Street Journal reported on Tuesday, an American medical supplies executive in Beijing has been trapped inside his office since Friday — held hostage, he says, by about 80 employees who believe he is shutting down the factory and who are demanding he pay them severance.

The drama surrounding the executive, Specialty Medical Supplies co-founder Chip Starnes, is an extreme example of the growing challenge labor disputes pose to foreigners doing business in China, according to foreign businessmen and lawyers. Fears that foreign factory owners or businessmen might up and leave with out paying their workers or suppliers have escalated since the financial crisis, a situation that can — and often does — lead to confrontation, they say.

Numbers for such disputes are hard to come by, though an investigation by the Economic Information Daily, a newspaper published by the official Xinhua news agency, found that more than 400 bosses ran away from bankrupt factories in eastern China’s Zhejiang province in 2008 (in Chinese). Most of those executives worked for foreign companies, meaning workers had virtually no hope of claiming months or even years of backpay owed to them.

“Sounds like there’s a big miscommunication here,” said Jack Perkowski, managing partner at JFP Holdings, Ltd., who has been doing business in China for 20 years and who says he’s seen foreign factory owners run into similar problems before.

Employees at Mr. Starnes’ factory, which makes alcohol pads and diabetes equipment, were not willing to talk when approached by The Journal on Monday, but according to a Tuesday report by Xinhua, workers believed Mr. Starnes had secretly decided to shut down the factory while still owing them two months’ salary.

Xinhua quoted workers as saying that the factory’s general manager and comptroller had both resigned and that machinery had been packed up over a recent holiday – typical behavior when factory ownership is looking to skip town.

Mr. Starnes, who does not speak Chinese, had earlier told The Journal that he was planning to move production of the diabetes equipment to India but that the factory in Beijing would continue to produce alcohol pads. On Tuesday, he said that the employees had been paid their salaries, adding that he did move one machine from the alcohol pad production line so that it could be replicated in Mumbai before being shipped back to the Beijing factory.

The factory’s controller recently resigned and his general manger is leaving in six weeks, both to pursue other opportunities, Mr. Starnes said. He also said that his attorneys are now meeting with local officials in an effort to resolve the dispute and that he does not plan to leave the factory until the issue is settled.

While bosses aren’t held captive in their companies every day in China, Starnes is not the first one. In January this year, around 1,000 workers at Shanghai Shinmei Electric Company held Japanese and Chinese managers hostage in the factory, claiming that work rules for bathroom breaks and punishments for tardiness were too harsh.

Last year, a Missouri executive of tent maker NorthPole Ltd. had his passport confiscated by a court in China’s coastal city of Xiamen after he found himself in the midst of a dispute with his suppliers, according to U.S. media reports.

“No matter what is the reason, this should not be happening,” He Gaochao, professor at political science department of Sun Yat sen University, said of Mr. Starnes’s predicament. “If his freedom is limited, this is not simply a labor dispute anymore.”

Part of the problem, experts say, is a dispute resolution system that favors dramatic action.

“China has a very employee-friendly labor mediation/arbitration system,” James Zimmerman, the managing partner in the Beijing office of Sheppard Mullin Richter & Hampton, LLP and former chairman of the American Chamber of Commerce China, wrote in an email. “The perception of workers and petitioners in general is that they do not have effective legal remedies to protect their interests, and find that taking action into their own hands gets near-immediate results,” he wrote.

Mr. Perkowski, meanwhile, said people who work for him had found themselves in situations similar to Starnes’, if somewhat less dramatic. “It’s not new. It’s happened before, it’s happening now, and it will happen again,” he said.

Although local police bureaus and labor arbitration organizations tended to side with workers, he said, foreign companies often didn’t do enough to communicate their side of the story to authorities. “They don’t like instabilities,” Mr. Perkowski said. “If you explain them the situation, they are in the position to help.”

Mr. Starnes said local police were bringing him three hot meals a day to him, but had declined to free him from his captivity. A spokesman at the local police station said on Monday that they were helping to resolve the conflict.

For his part, Prof. He said he doesn’t believe intensifying labor disputes will drive factories out of China. “It is not easy to move out of China, as the logistics and technology support here are great,” he said.